High costs, scarce goods
Raising prices – not every supplier can do that
By Diana Dittmer
2/4/2022, 4:38 p.m
Energy, personnel, logistics, material – everything has become more expensive. Most companies want to pass the costs on to customers. The manufacturer of medical devices B. Braun and the consulting firm Mercuri International speak to ntv.de about difficult price negotiations.
In the third year of the pandemic, further adjustments are pending in the economy. Companies suffering from high cost pressure will try – if they have not already done so – to raise prices. In the fall, retailers and their suppliers negotiated hard, after which labels on goods were exchanged, and some products were immediately thrown off the shelves. Price increases are now ubiquitous, they come as no surprise: delivery bottlenecks, shortages of goods, dramatically higher freight and raw material prices and hourly wages mean losses in the coffers of companies. The question is: How are companies doing with it. Is it easier for them to raise prices during the crisis because it is clear that their costs have risen significantly?
A flash survey by Mercuri International from mid-December to mid-January confirms that almost all of the 107 companies surveyed by the sales experts – across all sectors – want to raise prices this year. A third plan to add more than 7.5 percent. A good 60 percent state that they want to raise prices by between 2.5 percent and more than 7.5 percent. Most are confident about the negotiations. According to the study, over 80 percent of those surveyed are convinced that their clients can also pass on the higher prices to end customers.
Matthias Huckemann, initiator of the study, is less optimistic. He sees a fundamental need for explanation and negotiation, both of which are not “self-successful”. During the pandemic, “a tsunami broke out in the sales department,” says the managing director of Mercuri ntv.de. You don’t just have to ask yourself: “Can I credibly convey a higher purchase price to my customer, but can I deliver the desired goods in a timely and comprehensive manner?”
Negotiations in the healthcare sector are particularly challenging. Thorsten Krug, Head of Sales at the North Hessian company B. Braun, makes it clear: “Here, higher prices for raw materials etc. cannot simply be ‘passed on’ because, for example, hospitals have to cover the so-called DRG case cost flat rates (DRG – Diagnosis Related Groups) is no way to generate higher revenues.” B. Braun is currently confronted with precisely this problem. The manufacturer of medical technology products, which also offers medical services, has 65,000 employees and generates annual sales of 7.5 billion euros.
Easy price negotiations are an “illusion”
Huckemann and Krug, who have been involved for years, expect simple negotiations Pricing strategies and their implementation deal, therefore not. “How do you want to conduct price negotiations with a hospital when everything is calculated on edge and there is little or no financial leeway on the part of the customer?” says Krug. In view of higher price demands – from all competitors – hospitals would now have to decide whether they wanted to cover the costs from their own resources or switch to what is known as downgrading. Or in other words: whether they “want to buy the Opel instead of the Mercedes among medical products.”
This does not bode well for the health system, which has been strained by the corona pandemic. After protective equipment was missing in the first Corona year, quality defects could now follow. For example, if a hospital decides to switch to low-cost providers, Krug warns. “Then you might suddenly have a batch of disposable gloves, half of which are missing two fingertips.” The arguments for price increases may be understandable for everyone, but the hospitals could be “forced to rethink”, says Krug. “Everything must then – against the background of the cap – be put to the test.”
B. Braun has 5000 items on offer. Customers include clinics, medical practices, dialysis centers and pharmacies. The company also supplies the care sector and rescue services. That means a lot of customer contacts and negotiations. “Everything has become more expensive for us as a supplier: logistics costs have risen, raw materials and energy are more expensive, plus the costs for hygiene protection measures and the high sick leave rates caused by the pandemic,” says Krug. Everything is transparent, but it is still an “illusion” that price negotiations are easier in times of crisis and general increases in prices.
Just don’t “dive in” and “leave customers out in the rain”
It also doesn’t make it easier that instead of a buyer’s market, in some areas it’s a supplier’s market, because the suppliers decide which customer gets scarce goods at what price. That’s why it’s important for everyone to “act and negotiate professionally,” says Krug. “Necessary price increases must also be implemented in partnership and face-saving on both sides.” In particular, if there are no goods to be distributed, coordinated, uniform argumentation is required. Targeted communication training for employees is absolutely necessary for this.
Krug is critical when suppliers “go underground” and “leave customers out in the rain” instead of showing presence. He strongly advises against it. The balance of power on the market will “normalize” again in the foreseeable future, he says. Anyone who proves to be fair and reliable in the crisis will still have a customer after the pandemic. “We know which partners stood by our side during the pandemic and which suppliers were unavailable or did not help,” are statements that Krug has heard from many customers over the past two years.
Huckemann also sees it this way: Suppliers have to think long-term. “After the pandemic, the customer will be king again, he will recapture market power and with it the greed is cool mentality will return,” he says. In the meantime, he is appealing to politicians to take the changed market constellations for the German healthcare system into account. Inflation compensation and other compensation payments must ensure that quality is ensured, for example in the medical environment.